Today's Headlines

Bloomberg:

• Greek Vote Escalates Crisis as Schaeuble Raises Euro-Exit. Greece’s decision to return to the ballot box in the search for a government unleashed a hazardous new phase in Europe’s debt crisis, with German Finance Minister Wolfgang Schaeuble calling the vote a referendum on whether the country stays in the euro. Post-election attempts to form a ruling coalition in Athens broke down today after nine days, sending Greeks back to the polls next month with surveys giving the lead to an anti-bailout party that would tear up the conditions attached to 240 billion euros ($307 billion) of aid. “If Greece -- and this is the will of the great majority - - wants to stay in the euro, then they have to accept the conditions,” Schaeuble told reporters at a meeting of European finance ministers in Brussels. “Otherwise it isn’t possible. No responsible candidate can hide that from the electorate.” The euro tumbled to a four-month low, European stocks dropped and investors sought the safety of German bonds amid speculation that Greece would be forced out and pull other countries with it, doing untold damage to the European financial system. The Greek quagmire raised the tension for a meeting in Berlin tonight between German Chancellor Angela Merkel, the dominant figure in euro crisis management, and Francois Hollande, who took office as French president today in the first power shift to the Socialists in France since 1981.
• Schaeuble Says Greek Program Unnegotiable, Help Possible. German Finance Minister Wolfgang Schaeuble said the adjustment program set up to stabilize Greece’s debt isn’t debatable and is not being negotiated though bilateral measures can be taken to help the country. Euro-region finance ministers meeting in Brussels yesterday didn’t discuss whether the program’s “architecture” can be changed, Schaeuble told reporters after European Union finance ministers met today. “The fundamental question the second program for Greece is about -- namely to spare Greece’s financial system, as a part of the common European monetary union, access to financial markets for some time and at the same time help it to return to financial markets at some point in time on the basis of sustainable growth -- is agreed and not negotiable in its economic parts, and isn’t being negotiated,” he said. “If we can help with additional, bilateral measures, that’s an entirely different question.”
• European Stocks Retreat as Greece Will Hold New Election. European stocks dropped for a second day, pushing the Stoxx Europe 600 Index to its lowest level since December, as Greece called a new election after the country’s politicians failed to form a government. Banks (SXXP) posted the biggest contribution to the Stoxx 600’s decline. Julius Baer Group Ltd. (BAER) plunged 6.1 percent, its biggest slide in almost eight months, as revenue from assets under management fell in the first four months of the year. The Stoxx 600 retreated 0.7 percent to 245.76 at the close in London, extending its drop from this year’s peak on March 16 to 9.8 percent.
• Sovereign, Corporate Bond Risk Rises, Credit-Default Swaps Show. The cost of insuring against default on European sovereign and corporate debt rose, reversing an earlier decline, according to BNP Paribas SA. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed 3.5 basis points to 296.5 at 3:39 p.m. in London. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings jumped 14.5 basis points to 730.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 3.5 to 172.5. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers was up seven basis points at 287.5 and the subordinated index was 9.5 higher at 473.5.
• Hungary Default Swaps Gain for 8th Day as Greece Calls Elections. Hungary’s cost of insuring against default on government debt gained for an eighth day and the forint dropped as Greece headed for new elections, raising concern that Europe’s debt crisis will escalate. The country’s five-year credit-default swaps rose 3 basis points to 553 basis points by 5 p.m. in Budapest, the longest rising streak since November, according to data compiled by Bloomberg. The currency of Hungary, the European Union’s most indebted eastern member, retreated 0.4 percent to 293.4 per euro. That means a 1.5 percent loss in the past three days, the most in a similar period since March 29. Hungary’s benchmark 10-year bonds dropped, lifting yields 4 basis points to 8.34 percent, the highest since April 24.
• Spanish Bond Slump Risks LCH Margin Increase: Chart of the Day. Spanish government bonds risk incurring higher trading costs at LCH Clearnet Ltd. as their performance relative to Europe's safest assets deteriorates. The difference in yield between Spanish 10-year bonds and a benchmark of AAA rated euro-region sovereign debt is approaching 450 bps for the first time since the shared currency was created. LCH, Europe's biggest clearing house, increased the cost of trading Irish and Portuguese bonds by 15% when yield spreads for those securities climbed to similar levels.
• EU Ministers Reach Deal To Boost Bank Capital. European Union finance ministers agreed on a plan to force banks to hold more capital in a deal that gives the U.K. full powers to implement its so-called Vickers banking agenda. U.K. Chancellor of the Exchequer George Osborne said at a meeting of EU finance ministers in Brussels he won assurances from other nations that the U.K. will be able to follow through on its banking agenda, which will force large retail banks to hold more capital than the minimum international standards. That broke a deadlock reached two weeks ago, when 16 hours of talks left ministers divided on whether countries would need to seek permission when imposing extra loss buffers.
• U.S. Retail Sales Cool After Warm-Weather Spree: Economy. Retail sales rose in April at the slowest pace of the year as Americans took a break from a shopping spree induced by unseasonably warm weather in prior months and an earlier Easter holiday. The 0.1 percent gain followed a 0.7 percent increase in March, Commerce Department figures showed today in Washington. The April advance matched the median forecast in a Bloomberg News survey.
• Manufacturing in NY Region Rises More Than Forecast. The Federal Reserve Bank of New York’s general economic index increased to 17.1 this month from 6.6 in April. The median estimate in a survey of Bloomberg economists called for an increase to 9.
• Homebuilder Confidence in U.S. Climbs. The National Association of Home Builders/Wells Fargo index of builder confidence rose to 29, the highest since May 2007, a report from the Washington-based group showed today. The gauge exceeded the highest projection in a Bloomberg News survey in which the median estimate was 26. Readings below 50 mean more respondents said conditions were poor.

Wall Street Journal:

• Boehner Wants Cuts to Offset Debt-Ceiling Increase. House Speaker John Boehner (R., Ohio) will demand Tuesday that any increase in the government's borrowing limit be accompanied by spending cuts and other budget changes of greater size, according to excerpts of his prepared remarks. His comments, to be delivered in the afternoon at a Washington "fiscal summit" organized by the Peter G. Peterson Foundation, mark one of the first salvos delivered by Republican leaders this year on the fiscal scramble that is expected to take place after the November elections.
• Justice Department Opens JPMorgan(JPM) Inquiry. The Justice Department has opened an inquiry into J.P. Morgan Chase & Co.'s $2 billion-plus trading loss, according to a person familiar with the matter.
• Lagarde: Outcome of Greece Euro Exit Could be 'Quite Messy'. The consequences of Greece leaving the euro zone would be difficult to assess, but the situation could easily degenerate into turmoil, the head of the International Monetary Fund said Tuesday. "The spillover effects, the chain of consequences that could result from that [Greek euro exit] are very difficult to assess," Christine Lagarde told news station France24 in an interview. "We can certainly assume that it would be quite messy."
• Greek Depositors Withdrew $898 Million From Banks Monday. Greek depositors withdrew €700 million ($898 million) from local banks Monday, the country's president said, as he warned that the situation facing Greece's lenders was very difficult.

MarketWatch:

• Mexico, Brazil Stocks Fall; Real Hits 3-Year Low. Major Latin American stock markets fell Tuesday, with benchmark indexes in Mexico and Brazil extending recent losses and touching their lowest levels in at least three months.

CNBC.com:

• Whale Watch: Why Copying Big Investors Is 'Dangerous'.
• As Investors Fawn Over Facebook(FB), Poll Finds User Distrust, Apathy.

Zero Hedge:

• A Greek Affair To Remember And Mr. Hollande's Opus.
• Euro-Dumpfest Continues as LTRO Banks Implode.
• Santelli Explains Why A Broke California "Likes" A Hot Facebook(FB) IPO.
• Complete April and YTD Hedge Fund Performance Summary.
  

NY Post:

• Obama's Gay Marriage Decision Helped Raise $21M for Presidential Run In Just Days

Reuters:

• Hedge Funds Eye Further Profits From JPMorgan(JPM) Losses. Hedge funds are holding out for further gains from their bets against JPMorgan's massive position in U.S. credit derivatives, racking up tidy profits from a lucrative trade that could cost the U.S. bank more than $3 billion. Managers - some of them ex-employees of the biggest U.S. bank - started betting in credit derivative markets, including on an index of credit default swaps against its constituents, during the first quarter, believing JPMorgan's huge positions had created dislocations in the market which would disappear over time. Some of those funds are sticking with their positions just as the bank tries to unwind its trades, industry insiders say.
• ECB and Banks Brace for "Blockupy" Protest Chaos. The European Central Bank plans to hold its mid-month policy meeting early, move staff out of its headquarters and shift a farewell event for one of its board members out of town, all to avoid clashes with anti-capitalist 'Blockupy' protesters. 'Blockupy' activists angry at the way the financial crisis is affecting ordinary people are set to demonstrate in central Frankfurt from Wednesday to Saturday and have made the ECB and its building their central target.
• Copper at 4-Month Low as EU Concerns Mount. Copper hit a four-month low on Tuesday, shrugging off upbeat German growth data, as other EU economies contracted, the euro fell and concerns over slower growth in China and a political stalemate in Greece kept prices in check. Benchmark copper on the London Metal Exchange closed at $7,760, from a close of $7,775 on Monday. Earlier, the metal used in power and construction hit a session low of $7,732 a metric ton (1.1023 tons), its lowest since January 12.
• Home Depot(HD) Sales Miss Wall St Estimates. Home Depot Inc posted quarterly sales that fell short of Wall Street's heightened expectations on Tuesday after demand slowed in April following a jump in home improvement projects spurred by an unusually warm winter.

Financial Times:

• The State of the Eurozone, Credit Edition. Have you been wondering how Greece’s “new” bonds are doing? As in, the ones that were given to all those debtholders when they finally agreed — or were voted into by collective action clauses — the restructuring in March. Well, here they are:

Telegraph:

• This is How the Euro Ends - Not With a Whimper But a Bang. With Greece unable to form a government and therefore now set on new elections, how's this going to pan out? Very badly, is the almost certain answer.
• Appetiser cost of Greek exit is €155bn for Germany, France: trillions for meat course. Eric Dor's team at the IESEG School of Management in Lille has put together a table on the direct costs to Germany and France if Greece is pushed out of the euro.

Independent.ie:

• Largest Banks in America Cut Exposure to Ireland by Up to $1Bn. SOME of the largest banks in the world have cut their exposure to Ireland by almost a billion dollars since the start of the year, as big investors move away from this country. Latest filings in the US show Goldman Sachs and Bank of America cut the amounts they have invested in Irish-related securities by at least $800m (€622m) between the end of last year and March 31; while JP Morgan's Irish investments are now so small they are bundled in with Greece and Portugal.

The Australian:

• China Growth 'has slowed to a walk'. TROUBLE is looming. Even in the few days since last week's federal budget, some of its basic assumptions, particularly about Chinese growth, are looking shaky. Heavy-hitting economists in Beijing are now worrying that China's growth has already slowed to a walking pace at best, well beyond the Chinese government's intention to calm down earlier runaway expansion. "It has been a nice ride for Australia, a fantastic ride," says Patrick Chovanec, associate professor at the School of Economics and Management at Tsinghua, one of China's top universities. "I wouldn't blame anyone for riding that wave. But it's starting to putter out. Australia has been growing out of China's bubble, and it wasn't sustainable . . . we're starting to see what that looks like." A growing number of economists are stating that the 8.1 per cent year-on-year growth China's National Bureau of Statistics announced for the first quarter of this year was suspiciously rosy, even by the generally unreliable standards often ascribed to those statistics. The reason for widespread questioning about the 8.1 per cent to 7.4 per cent growth figure is the unusually wide range of other data that points to a much slower pace. These include electricity output rising just 0.7 per cent last month, when imports grew only 0.3 per cent, real estate sales were down 16 per cent, and new property construction was down 4.2 per cent. The Bank of China, the third-biggest of the state-owned "pillar" banks by assets, announced that its new loans fell 17 per cent in the first quarter, year-on-year. Deposits in Chinese banks as a whole fell by 0.5 per cent last month, according to the central bank. The People's Bank of China's announcement last weekend of a cut of half a percentage point in the reserve ratio requirement is unlikely, in such circumstances, to achieve its aim of freeing up further funding for banks to lend out. The tight controls over margins are driving lenders away now that alternatives are emerging. And if deposits keep falling, reserve ratios will have to keep falling too, just to maintain the amount of money available for lending out. Industrial production rose just 0.35 per cent in April from March, after increasing 1.22 per cent from February. And value-added industrial output rose 9.3 per cent in April from a year earlier, slowing sharply from a 11.9 per cent year-on-year increase in March. Retail sales increased 14.1 per cent in April from a year earlier, compared with a 15.2 per cent rise in March. UK risk-analysis firm Business Monitor International has forecast air-freight tonnage to increase by 4.4 per cent in China this year, Port of Shanghai throughput to rise by just 2.3 per cent, national road freight by 3.6 per cent and rail freight by 3.7 per cent. According to US cables revealed via Wikileaks, Li Keqiang, who is to become Premier said he used three core statistics to track the performance of the Chinese economy, rather than the bald growth figure: electricity consumption, rail-cargo volume and bank lending. Aggregating these three from the performance in the year so far, it is hard to see how China can reach anywhere near the 8.5 per cent overall growth the federal government's budget anticipates. "When you look at the trend lines, they are down: for instance, real estate, which accounts for a lot of the demand for steel and has especially benefited Australia, which has been perfectly positioned to feed China's investment boom of the past three years." Real estate comprises a quarter of China's fixed-asset investments, and half its GDP growth. But its sales are down this year and starts are either flat or down. The apparently contradictory 24 per cent lift in investment in real estate has come, he says, from "developers rushing to complete projects, to get into the market, cash out and pay off debts". Completions are up 33 per cent. Only 14 per cent of Chinese consumers say they are interested in buying property, the lowest rate since 1999, because they see that prices falling. Despite the common international perception, he says, "there are not many levers they can pull, and all of them come at a cost". China could pump money back in to reflate the asset bubble, he says, but the quality and value of the resulting infrastructure would be questionable. "There has always been a strong incentive for officials to overstate growth," he says. "But if growth is lower than the official figures, why have commodity prices stayed reasonably high?" One answer, he suspects, is the additional stock-piling of non-food commodities. He says 90 per cent of the copper held in warehouses in Shanghai is used for financing -- and if prices come down, there will be margin calls, and China will temporarily become a copper exporter. He says a slowdown is certainly under way in China, and reducing the reserve requirement -- as the country's central bank did on Saturday -- will not help much. "It is the loan quota that has been the real binding constraint, but that is now shifting so that demand (or the lack of it) is the new restraint on the economy."

China Daily:

• Chines State Councilor Dai Bingguo said China "won't be bullied" by a "small nation" like the Philippines.

Shanghai Daily:

• Shanghai's Growth Slows Again. SHANGHAI'S economic growth weakened further in April as exports, imports and fixed-asset investment all declined. The weak performance also nibbled away at industrial production growth in the first four months, the Shanghai Statistics Bureau said yesterday. With less inflationary pressure around the country, Shanghai, in particular, needs stimulus to boost its growth, analysts said. Exports fell 5.6 percent from a year earlier to US$16.3 billion last month, and imports were down 1.6 percent to US$18.2 billion. It was the first time since October 2009 that Shanghai had reported declines in both exports and imports, the bureau said. Fixed-asset investment in the first four months lost 0.4 percent to 122.3 billion yuan (US$19.4 billion), led by a cut of 25.8 percent in urban infrastructure construction investment. Industrial production also slumped 0.2 percent to 1.01 trillion yuan during the four months, compared with 0.7 percent expansion in the first quarter. "Shanghai's economic growth is weakening faster than feared," said Li Maoyu, a Changjiang Securities Co analyst.